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All posts tagged Tax

HMRC Recalculations: Recovery Effort

Rebecca Cave has explained how HMRC will begin to repair the 2016/17 income tax calculations for around 30,000 taxpayers. On the 13th of November, software developers received an email from HMRC’s Software Developers support team giving more detail.

This Email Contained the Following information:

– The “recovery exercise” will begin on 19 November 2018.
A total of 22 different exclusions that affected the calculations have been identified.
– Affected taxpayers should receive a new SA302 by the end of November.
– Copies will not be sent to agents.
– Penalties will not be applied and interest on underpayments will not be charged provided the additional tax is paid within 28 days of the date of the notice (in many cases the taxpayer will have been overcharged and so entitled to a repayment).
– Appeals against the amended SA302 (if appropriate) must be made within 30 days of the date of the notice.

The exclusion cases to be repaired in this recovery exercise have been listed as:

1) Non-UK resident – exclusions 57, 67 and 73:

57 – Relating to the 7.5% notional tax paid on UK Dividend income.
67 – Relating to the tax due on trust income.
73 – Relating to the loss claimed.

2) Beneficial ordering – exclusions 68, 69, 70, 72, 76, 78, 79, 82, 83 and 85:

Relating to how the personal allowance and/or reliefs are allocated to ensure the allocation is most beneficial to the customer.

3) Dividend tax credit, trust and Lloyds – exclusions 62 and 75:

Relating to the tax calculation to give the relief due on apportioned income.

4) Marriage allowance transfer (MAT) – exclusions 66 and 66A.

5) Capital gains not calculating – exclusions 64 and 77.

6) Chargeable event gains – exclusions 74 and 81:

Relating to the top-slicing relief that is due.

7) Pension lump sum – exclusion 87:

Relating to the tax due on your state pension lump sum.

The exclusions that will generate the greatest number of recovery cases are those listed above under beneficial ordering.

Chargeable events

Watch out for chargeable event gains. Exclusion 81 was agreed following my representations to HMRC (and my article last year in Taxation Magazine). But only very recently have HMRC (again at my behest) agreed to remove exclusion 80 and confirm that the HMRC calculation was after all correct.

You may need to check whether your tax return software incorrectly calculated tax because of exclusion 80 and as a result, the client overpaid for 2016/17.

Entrepreneurs Relief – Not so simple

There have been some changes released to entreprenuers releif with the 2018 budget. Here a few of the important points to look out for.

Meeting Conditions

To qualify you must now meet the 5 following conditions, whereas before it was only 3. They must all also be met within a 12-month period ending with the date of disposal, or the date the company ceased trading or ceased being a member of a trading group, where the shares are sold within three years of that cessation. The conditions are:

– Be an employee or officer of the company.

– Hold at least 5% of the “ordinary share capital”.

– Hold at least 5% of the voting rights associated with that ordinary share capital.

– Be entitled to at least 5% of the company’s distributable profits.

– Have a right to at least 5% of the net assets of the company available to equity holders on a winding up.

The two former conditions listed were added to ensure that induviduals who are benefitting from this relief, do in fact have a material stake in the company.

For more information about entrepeneur’s relief follow this link: Entrepreneur’ Relief.

Summary of the 2018 Budget

Personal Tax & Wages

– The personal allowance threshold, the rate at which people start paying income tax at 20%, to rise from £11,850 to £12,500 in April – a year earlier than planned

– The higher rate income tax threshold, the point at which people start paying tax at 40%, to rise from £46,350 to £50,000 in April
After that, the two rates will rise in line with inflation

– National Living Wage increasing by 4.9%, from £7.83 to £8.21 an hour, from April 2019.

– Tax rates and thresholds are different in Scotland. The Scottish government’s Finance Secretary Derek Mackay will set out his plan for Scottish tax payers on 12 December.

Alcohol, tobacco and fuel

– Beer, cider and spirits duties to be frozen

– Cost of a bottle of wine duty to rise by 8p, in line with inflation, in February

– Tobacco duty will continue to rise by inflation plus 2%

– A packet of 20 cigarettes will go up by 33p at 18.00 GMT

– A ten gram pack of cigars goes up by 17p.

– Fuel duty to be frozen for ninth year in a row

– Remote Gaming Duty to increase to 21% for online gambling on “games of chance” from 2019

Stamp duty and housing

– All first-time buyers purchasing shared equity homes of up to £500,000 will be eligible for first-time buyers’ relief

– £500m for the Housing Infrastructure Fund, designed to enable a further 650,000 homes to be built

– Lettings relief limited to properties where the owner is in shared occupancy with the tenant

– New partnerships with housing associations in England to deliver 13,000 homes

– Guarantees of up to £1bn for smaller house-builders

Welfare and pensions

– Work allowances for universal credit to be increased by £1.7bn

– 2.4 million working families with children to benefit by £630 a year

– An extra £1bn to help welfare claimants transfer to the new consolidated benefit

– Chancellor insists controversial system is “here to stay”

The state of the economy

– Era of austerity is “finally coming to an end”, the chancellor says

– 2018 growth forecast downgraded to 1.3% from 1.5% in March, due to impact of bad Spring weather

– But forecast for 2019 raised from 1.3% to 1.6% and annual forecasts raised to 1.4%, 1.4%, 1.5% and 1.6% in 2020, 2021, 2022 and 2023 respectively.

– 3.3 million more people in work since 2010 and 800,000 more jobs forecast by 2022.

– Wages growth at its highest in nearly a decade

The state of the public finances

– Public borrowing in 2018 to be £11.6bn lower than forecast in March, representing 1.2% of gross domestic product, (GDP) the total value of goods produced and services provided

– Borrowing as a share of GDP to rise to 1.4% next year

– Borrowing to total £31.8bn, £26.7bn. £23.8bn, £20.8bn and £19.8bn in next five years

– Debt as share of GDP peaked at 85.2% in 2016-17, falling to 83.7% this year and to 74.1% by 2023-24

– 1.2% annual average growth in departmental spending promised

Brexit

– Extra £500m for preparations for leaving the EU

– Spring Statement next March could be upgraded to full Budget if needed

– A commemorative 50p coin to mark the UK’s departure from the EU

Defence and security

– An extra £160m for counter-terrorism police

– An extra £1bn for armed forces, for cyber-capabilities and the UK’s new nuclear submarine programme

– £10m for mental health care for veterans, to mark the centenary of the Armistice which brought World War One to an end

– £1m to fund school trips to World War One battlefields

– £1.7m in Holocaust education programmes to mark the 75th anniversary of the liberation of Bergen-Belsen concentration camp, in northern Germany

Business and digital

– New 2% digital services tax on UK revenues of big technology companies, from April 2020

– Profitable companies with global sales of more than £500m will be liable

– Private finance initiative (PFI) contracts to be abolished in future

– New centre of excellence to manage existing deals “in the taxpayer’s interest”

– Annual investment allowance to be increased from £200,000 to £1m for two years

– Contribution of small companies to apprenticeship levy to be reduced from 10% to 5%

– Business rates bill for firms with a rateable value of £51,000 or less to be cut by third over two years

– Measure to benefit 90% of independent shops, pubs and restaurants, cutting bills by £8,000

– £900m in business rates relief for small businesses and £650m to rejuvenate High Streets

-New 100% mandatory business rates relief for all lavatories made available for public use

– Extending changes to the way self-employment status is taxed, from the public sector to medium and large private companies, from 2020

Education and health (England only)

– Confirmation of an extra £20.5bn for the NHS over the next five years

– A minimum extra £2bn a year for mental health services
New mental health crisis centres, providing support in every accident and emergency unit in the country

– More mental health ambulances and a 24-hour mental health crisis hotline.

– An extra £700m for councils, for care for the elderly and those with disabilities

– £10m for air ambulances

– A one-off £400m “bonus” to help schools buy “the little extras they need” this year

– Funding for 10 University Enterprise Zones

Transport, infrastructure and culture

– A £30bn package for England’s roads, including repairs to motorways and potholes

– A 30% growth in infrastructure spending

– Opening the use of e-passport gates at airports – currently available to people from Europe – to those from the USA, Canada, New Zealand, Australia and Japan

– Air Passenger Duty to be indexed in line with inflation

Environment and energy

– A new tax on plastic packaging which does not contain 30% recyclable material

– No tax on takeaway coffee cups but to be reconsidered if the industry doesn’t make enough progress

– £60m for planting trees in England

– £10m to deal with abandoned waste sites

Nations and regions

– An additional £950m for the Scottish government, £550m for the Welsh government and £320m for a Northern Ireland Executive in the period to 2020-21

– New City and Growth deals for Belfast, north Wales and the Tay Cities area, which includes the cities of Dundee and Perth as well as Angus and the north part of Fife,

– £2m for Belfast to help recover from August’s Primark fire

– £70m to develop the Defence and National Rehabilitation Centre near Loughborough

 

 

Main Points taken from the BBC News website.

Self Employed Tax Cut Scrapped by Hammond

Plans for a tax cut for millions of self-employed workers have been scrapped by chancellor Phillip Hammond. This will cost those affected £130 a year, and those affected number around three million.

They have denied plans to abolish class 2 National Insurance Contributions for the self-employed, and in the words of John O’Connell is ‘letting down’ all those affected. Also saying that ‘High taxes on the self-employed discourages entrepreneurship and risk-taking.’ O’Connell has been making it clear that he opposes the scrapping of the plans, which were planned to have taken place in April. But obviously were delayed for a year, and was recently fully overturned with no sign or repeal in sight.

Annexe or Enlargement?

The case of Roman Catholic Diocese of Westminster v HMRC (TC06692) related to a new church hall built at St Joseph Church in Stevenage, linked to an existing church building. The issue in dispute was whether the new hall was:

a)an ‘annexe’, ie an independent building capable of functioning in its own right, separate to the existing church (VAT Notice 708, para 3.2.6);
b) or an enlargement or extension to the existing church.

The Diocese (a charity) had assumed that a) applied and it was correct to issue a VAT certificate to the builder to confirm that this was the case. HMRC believed that b) applied, in which case the builder’s services would be standard rated.

After much deliberation, the tribunal allowed the appeal and looked at the before and after of the building post completion of the works, and concluded that structures were different. Therefore qualifying as an annexe.

Tips for these kinds of disputes:

1. Always focus on the approach of the judge, who I felt really cut through the finer detail and looked at the bigger picture. He said he examined “the physical characters of the building as it was, and as it is after completion of the works.”

2. Ensure that the new building will function independently from existing buildings. The new church hall even had separate heating thermostats and boiler controls.

3. Don’t be afraid to ask for a ruling from HMRC – the charity unit is much more accommodating in giving written VAT rulings than for a commercial business. There is an online form headed: “Charities and VAT – Enquiry form for Charities” which can be completed and submitted and then you get an email reply with a decision.

The Model Office and New Technology

 

The Model Office for those that are unaware, as the are possibly the opposite of what you would expect from a ‘Tax office’, they are a fairly new addition being established only 18 months ago. The goal is explore new technologies and develop ways that they can be used to help customers in thier various taxation needs. And with the ever evolving state of the technological world that is by no means a small feat.

One the focuses for the Model Office currently is the addition of the rising popularity of home voice systems, for example Alexa, Amazons home voice system. The purpose of many home voice systems like Alexa are allow users to provide quick and easy access to internet services, like music and internet searches, but this can be adapted to many things.

The Model Office has examined the main reasons for customers calling HMRC last year and have grouped and built these reasons into an Alexa ‘skill’. This skill means that when customers say to their Alexa, “Alexa, open HMRC” they will then be asked a series of questions by the device and dependant on the answers given, they will be directed down the most suitable route to have their queries answered. In some cases the user will also be asked if they would like an SMS message containing a link to the relevant guidance from the GOV.UK website.

It is good to see new technology being implemented in ways that seem to be genuinely useful for those less versed on the intricacies of taxation law.

Inheritance Tax; Avoiding the Tax Bill

The vast majority of people want to be able to leave this world with the comfort of knowing that our loved ones will be prosperous and happy, and one of the most common ways that people do that is by leaving all that we own to those loved ones.

The problem comes when not all that we leave is going to them a steadily increasing amount of that inheritance is being taxed away, in this last tax year of 2017/18, HMRC made £5.2bn through Inheritance Tax (IHT) alone. This is an 8% rise based on 2016/17 and close to double the earnings of 2010/11.

Why is this? You may ask, this is largely because of the surge of house prices in this time period, and the fact that the IHT tax free threshold has remained the same. Which for those unaware is £325,000 for an induvidual and £650,000 for a married couple/civil partners. This causes more people to be above that threshold and then liable to as much as 40% on the excess.
Especially when considering that the average house price (according to Rightmove.co.uk) is £623,855, if this were left in inheritance nearly the whole sum would be used by the real estate value alone.

Another reason that this tax is such an issue is due to the many changes to the rules that dictate IHT since its creation in 1796, and again these are under review and with no guarantee on how beneficial it will be for those looking to ensure as much goes to thier loved ones as possible. But as IHT currently stands there may be some ways to reduce how much will be taken by the tax man.

Gifts

The easiest strategy is to begin the inheritance early, if you are set already on who is set to inherit from you, an easy way to ensure as much as you can reaches them would be to begin giving it to them before the taxman gets to see it.

You can gift up to £3,000 a year without it being noted against the value of your estate, this yearly allowance can also be carried over to the following year, there are also a few excemptions to this rule as well, examples being; you can gift up to £250 per person per year for marriages. Another for those most humanitarian for us, you could give some to one of the many great charities out there to better the world before you leave it.

A less commonly known, or utilised option is to help with the current living costs of those loved ones, things like paying rent or bills, though these options are only really suitable and advised for those among us lucky enough to be able to provide this and still be able support themselves and lead the lives they want to, enjoying the money that they earned.

Trusts

Many have heard of trust funds, the most common use is to provide a boost to the younger generation by having a sum of money given to them, that unlocks once they become of age to give them a head start on stepping out into the world on their own two feet.

This can also be a good way to handle an inheritance, as it would also give a degree of control over how the money is spent, this means you could ensure that this in heritance could only be used for a down payment on a property or other major expenditure to that effect. This commonly sits better with most, as it avoid this sum being “wasted” on unintended things.

Trusts however can be complex and difficult, so for those seeking this path it is advised to seek help from a financial advisor, like us here at Cloud Bookkeeper.